Учебный год 22-23 / Mistake, Fraud and Duties to Inform in European Contract Law (The Common Core of European Private Law)-1
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second-hand things.40 In such cases the buyer only has to prove that the goods do not have the promised qualities; there is no need to prove any fraudulent behaviour or negligence. The fact that the engine has been found broken after several months does not bar the action because time runs from discovery of the defect (art. 1495 of the Civil Code).41
(ii) In the case of fraud, if the factual evidence proves that the car was not at all in good condition, as assured by the garage, the court could find elements of deceit (art. 1439 of the Civil Code).42 In case Bruno decides to raise such a claim the presence of an express promise of ‘good condition’ would enable him to use the precontractual liability action. There is a general precontractual duty of good faith (according to arts. 1337 and 1338) and the promise made by the seller that the car was in ‘good condition’ amounts to a breach of this duty.
The Supreme Court43 says that a buyer can claim damages with or without claiming annulment as cumulative actions are allowed by Italian case law; scholars analyse this as a precontractual liability although ‘negative interest’ (reliance) damages are allowed.44 The way Italian courts assess damages in precontractual liability cases does not follow the straight distinction between reliance and expectation damages; generally they provide an equitable assessment and even if in theory only negative interest can be claimed, there are cases where greater compensation can be obtained.45 This kind of case is very frequent in the small claims court ‘giudici di pace’ and are generally handled through a pre-trial examination of the vehicle made by an expert who will take an oath out of court to fulfil his duty correctly.
The Netherlands
Bruno has several remedies.
(i) The local garage assured Bruno that the second-hand car he bought was a 1995 model ‘as good as new’. Does this amount to a guarantee? If it is, and if the statement turns out to be untrue Bruno can claim
40Cass 1995, n. 806, Cass 1979, n. 2167.
41Article 1495 of the Civil Code. The limits and conditions of action: ‘The buyer forfeits the right of warranty if he fails to notify the seller of the defects in the thing within eight days from their discovery, unless a different time limit is established by the parties or by law. Notification is not necessary if the seller has acknowledged the existence of the defect or if he has concealed it. In all cases, the action is prescribed in one year from delivery; but the buyer who is sued for performance of the contract can always plead the warranty, provided that the defect in the thing was notified within eight days from the discovery and within one year from delivery.’
42Cass 1996, n. 3001; Cass 1960, n. 2119. 43 Cass 1968, n. 2445.
44 Bianca, Il contratto, p. 1 77. 45 See D. Caruso, La culpa in contrahendo, pp. 118 ff.
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damages on the basis of breach of the guarantee, which is a separate contract.46
Under the old Code, which was applicable until 1992, and which may still be applicable to some cases decided today,47 the question whether there was a guarantee was of particular interest. The Hoge Raad had held since 1963 that in case of species objects the rules on hidden defects48 excluded the applicability of the general rules on non-performance (liability for breach, possibility of termination etc.), thereby effectively turning the rules on hidden defects from a protection device for the buyer into a doctrine that favours the seller, because the buyer had to complain very quickly (within a short delay) and if he did not he would lose his claim. However, the rules on hidden defects did not preclude the buyer from making a claim on the basis of a guarantee made by the seller.49 Therefore in cases of hidden defects it was crucial for the buyer to establish that the seller guaranteed the absence of hidden defects.50 This also explains why the courts sometimes applied the rather artificial doctrine of implied warranties.
The present 1992 Code no longer contains a specific doctrine of hidden defects. It was replaced by the general doctrine of non-conformity, similar to the Vienna Sales Convention. Therefore the doctrine of explicit and implicit guarantees is no longer needed to circumvent the obstacle of the requirement of short delay for a claim for damages or termination to succeed in case of hidden defects (see below (ii)). Nevertheless, in the case where an explicit or implicit guarantee can be established the buyer is free to base his claim on that rather than on a (possible) ground of non-conformity.
Does the garage’s assurance that the second-hand car sold is ‘as good as new’ amount to a warranty? The statement ‘as good as new’ is definitely far too general but the claim that the car was a 1995 model might amount to a warranty.51
(ii) Article 7:17, s. 1 BW says that the object delivered must ‘conform to the contract’ (conformity). Section 2 explains when this requirement is not met:
A thing does not conform to the contract if it does not possess the qualities which the buyer was entitled to expect on the basis of the contract. The buyer
46 Cf. Asser/Hijma 5-I (2001), no. 338. 47 See art. 182 Overgangswet.
48 Articles 1540 ff. old BW. 49 HR, 10 May 1963, NJ 1963, 288 (Vouwapparaat)
50Cf. Asser/Hijma 5-I (2001), no. 365.
51Compare the examples in Asser/Hijma 5-I (2001), no. 338.
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may expect that the thing possesses the qualities necessary for its normal use, the existence of which is not open to doubt, and the qualities necessary for any special use provided in the contract.
Did the car conform to the contract? This requirement does not seem to have been met. In other words: there seems to be non-conformity. The car does not seem to have the qualities the buyer was entitled to expect. It does not have the qualities necessary to allow an ordinary use of it and Bruno was not expected to have any doubt about the presence of these qualities. The ordinary way to use a car is to drive it on the public roads. Here the case HR, 15 April 1994, (Schirmeister/De Heus)52 is of particular relevance. In that case the Hoge Raad made the following general considerations:
Whenever the seller knows that a (second-hand) car is bought in order to use it, as the seller knows, on the public roads, it will have to be held in general that the car is not in conformity with the contract in case, as a result of a defect that cannot be easily discovered nor repaired, such use of the car would lead to a dangerous traffic situation. It is not to be excluded that exceptions have to be made to this rule, e.g. when the buyer has accepted the risk of the presence of such a defect. The latter may occur, for transactions like the one under discussion here, in the situation, among others, where for a buyer the state of the carrosserie of the car is more important than its suitability for circulation. However, it should be taken into account that, statements by the seller regarding that condition, depending on their content, may be a bar to such an acceptance of the risk of defects.
Applying this rule to Bruno’s case there seems to be a case of nonconformity. If Bruno intended to use the car on the public roads and the seller knew this -- which seems likely in this case, and which, unlike the case of Schirmeister/De Heus that dealt with the sale of an ‘old timer’ (a 20-year-old Citroen DS), may probably be presumed -- the car does not correspond to the contract if using it on the public roads would cause danger to traffic. This seems to be the case here. The car is likely to cause danger to traffic since it is said to be ‘unroadworthy’, and the defect cannot be easily repaired since it is said that the motor needs replacing.53 The exception to the rule indicated by the Hoge Raad in its decision does not seem to apply. There are no facts stated
52NJ 1995, 614, note Brunner.
53It seems likely that the Hoge Raad intends the expenses of the reparation to be decisive rather than the amount of work and time it will take.
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that suggest that Bruno had accepted the risk of the presence of the defect.
Bruno does not seem to have lost his right to invoke non-conformity on the basis of limitation set out in art. 7:23, s. 1 BW.54 So, regardless of whether or not the statements made by the seller amounted to a guarantee, Bruno may opt for several remedies on the basis of non-conformity, i.e. repair and replacement, terminate, and ask for specific performance and claim damages. In principle the remedies may be combined to the extent that they do not logically exclude each other (e.g. specific performance and termination).
As the contract comes within the definition of a consumer sales contract,55 Bruno has a number of additional rights and remedies as a consumer which cannot be limited or excluded in the contract (art. 7:6 BW). According to art. 7:21 BW, s. 1, in case of non-conformity the buyer may, in principle, at his choice, claim delivery of missing parts, repair of the object, or replacement of the object.56 Since the problem is not one of a missing part, the first remedy does not apply, but the second and the third may be of interest for Bruno. He may claim repair or replacement of the car. However, if he does, because it is a consumer sale, the seller may choose either to replace the car or give back the price Bruno paid.57 Of course the consumer-buyer does not only have these specific
54The first sentence says: ‘The buyer may not claim that delivery does not conform to the contract, unless he has notified the seller thereof promptly after he has, or reasonably should have, discovered this.’ The second sentence of art. 7:23, s. 1 BW says: ‘Where, however, it is established that the thing lacks a quality which according to the seller it possessed, or where the variance pertains to facts of which the seller was aware or ought to have been aware but has not communicated, the notification must take place promptly after the discovery.’
55A contract of consumer sale is defined in art. 7:6 BW as a contract of sale between a professional seller and a non-professional buyer.
56Article 7:21 BW, s. 1: ‘Where the thing delivered does not conform to the contract, the buyer may demand: a. delivery of that which is missing; b. repair of the thing delivered, provided the seller can reasonably comply therewith; c. replacement of the thing delivered, unless the variance from what was agreed is too insignificant to justify this, or unless, after the buyer should reasonably have taken into acccount the right to set it aside, the thing has been lost or has deteriorated because the buyer has not ensured its safekeeping as a prudent obligor.’
57Article 7:21 BW, s. 2: ‘If, in a consumer sale and pursuant to subparagraph b or c of paragraph 1, the buyer demands the repair or replacement, the seller is entitled to choose between replacement or reimbursement of the purchase price. The seller must make this choice within a short period, and, subsequently, he must perform his obligation within a reasonable period, failing which the buyer may enforce his rights to demand repair or replacement.’
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remedies given to him in art. 7:21 BW; he also has the other general remedies,58 so he may, in principle, terminate the contract as explained above.59
Bruno may also claim damages (see arts. 6:74 BW and 7:24 BW). As to damages he may claim both damages that replace the performance by the seller and damages for delay for the period for which the seller was in mora (art. 6:85 BW). As said, remedies may be combined. Bruno could, for example, choose to terminate the contract and at the same time claim damages for delay.
(iii)Depending on whether the seller knew that the car was not a 1995 model ‘as good as new’ but in fact unroadworthy Bruno may annul the contract for fraud (art. 3:44 BW). Bruno will then have to prove intentional deceit. It does not necessarily follow from the facts that the seller deceived Bruno intentionally.60 If intentional deceit is established Bruno may eventually claim for recovery of damages in tort.
(iv)Bruno may annul the contract for mistake. If Bruno entered into the contract on the basis of the seller’s declarations he may annul the contract for mistake. The seller made statements which turned out to be untrue. This makes the contract voidable (art. 6:228 (1)(a) BW). A potential duty for Bruno to investigate is outweighed by the seller’s duty to make correct statements. In principle, a party may expect the statements made by the other to be true.61 If Bruno was not induced to conclude the contract by the statements of the seller he may nevertheless annul it for common mistake if he would not have concluded the contract had he known that the car was unroadworthy and the motor needed replacing. In the Schirmeister/De Heus case mentioned above,62 the Hoge Raad quashed the decision on this point: the reasons given were insufficient to shift the risk of the mistake to the buyer. In Bruno’s case there seems to be no reason why the common mistake should remain at his risk. Thus, he may choose to ask for a reduction of the price or for the car to be repaired on the basis of art. 6:230 BW.63
58Article 7:22 BW: ‘The rights mentioned in articles 20 and 21 may be exercised by the buyer, without prejudice to all other rights or actions.’
59See art. 6:265 BW. 60 See above pp. 184--5, Case 3.
61See HR Booy/Wisman etc. See on this, Case 11.
62The Court of Appeal gave as reasons for their decision the fact that the car was
22 years old; the characteristics of the parties (both were amateur enthusiasts of old Citroens) and the fact that the defect had become apparent only a year after the conclusion of the contract and the buyer had used the car for some time.
63See on this article, Case 3.
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Norway
Whether Bruno can claim breach of contract against the seller may be answered using two different legal principles:
(i)One may ask if the car could be seen as corresponding to the information provided by the seller, cf. Norwegian Sale of Goods Act, §§ 17 (1) and 18. The description ‘as good as new’ is general and vague, but still gives the impression that the car is in (relatively) good condition. The description is, therefore, not without content and, as such, cannot be regarded as a ‘mere puff’.
Somewhat earlier legal practice seems to have favoured a more liberal attitude towards the seller. Reference may, for instance, be made to U 1961.143 H and U 1975.84 H. It would seem that there has been a tightening up in this area. Even if the purchaser of a nine-year-old car has to be prepared for considerable wear and tear, the claimed defects are so serious that the description ‘as good as new’ appears to be a misrepresentation. There is consequently a defect in the car, and the purchaser can present the usual claims for breach of contract. In this case, termination combined with damages seems reasonable.
(ii)A judgment of defect can be made independently of the information the seller has given the purchaser about the item for sale. If a judgment is given which is not closely related to the circumstances of the sale, it is often termed an abstract or general judgment of defect. The judgment must then be based on a general standard of quality -- an implied term.
It is somewhat unclear what can, generally, be expected by the purchaser from an item for sale. In the Swedish Sale of Goods Act, § 17, para. 3, the criterion is ‘what the purchaser with reason could expect’. 64 Regarding the sale of fungible goods, one speaks in Norwegian theory of the requirement for delivering ‘a reasonably good item’ or an item having ‘a normal functioning capacity throughout a reasonable operating period’.65,66 Especially when considering brand new goods, such a view could be of value. With the sale of unique items, this approach would
64J. Nørager-Nielsen and S. Theilgaard, Købeloven med kommentarer (2nd edn, Copenhagen, 1993), p. 708, consider that the commonly used defect term ‘is based on the purchaser’s expectation of an item having the same use and value as items of a similar kind’.
65See RT 1974.269, p. 276 and ND 1979.231 Wingull, as well as V. Hagstrøm, Fragmenter fra obligasjonsrett (Oslo 1992), vol. II, chs. 12 and 51, p. 34, and K. Krüger, Norsk kontraktsrett (Bergen, 1989), p. 213.
66The requirements of the Norwegian Sale of Goods Act, § 17(2) (a), that an item should be suited to the same purposes as similar items and (2)(d) should be packaged in a regular or secure way, can be seen as resulting from more stringent norms.
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be less fruitful, and (each situation) would need to be more individually determined. Not least, the price of the item would influence judgment. It is emphasised that ‘the decisive factor is whether the creditor has adequate grounds to be concerned about the item’.67 This is actually the same thinking as we found in the Swedish Sale of Goods Act, § 17, para. 3.
The flaws found in the car are probably more serious than what the purchaser could reasonably expect at the time of the signing of the contract. On these grounds, a defect is present, and regular defect remedies can be used.
Used goods, such as second-hand cars, are normally sold in ‘as is’ condition. The Norwegian Sale of Goods Act, § 19(1)(c) indicates, in such a case, particular limitations that hold regardless of any disclaimer of liability. The goods should not be in ‘substantially worse condition than the buyer had reason to expect in view of the price and other circumstances’. Because a purchaser normally has to be prepared for a deterioration of quality in used goods, the criterion of essentiality would probably not lead to conclusions noticeably different from what follows from the general principles.
Portugal
This case would be considered as a case of defects related to the working order of the thing sold, which the seller guaranteed was in proper working condition. Therefore, the law (art. 921◦ of the Civil Code) states that if the seller was obliged by agreement or usage to grant the good working order of the thing sold, he has to repair or substitute it, even if he committed no fault nor was the buyer mistaken. The law provides for this guarantee and does not distinguish between new and second-hand things. However, the guarantee is only valid for six months after conclusion of the sale unless common usage has established a longer period (art. 921◦, 2 of the Civil Code). Provided that Bruno brings a claim within six months of the sale, he can ask the seller to repair or replace the car.
Scotland
Whether a remedy is available to Bruno or not depends on how the statement from the garage is classified. A statement that a second-hand car is ‘as good as new’ would appear to be an expression of opinion. An opinion has been held not to give rise to any obligations and cannot be relied upon. This point was made by Lord Mackenzie in the
67 Hagstrøm, Fragmenter fra obligasjonsrett, vol. p. 41.
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case of Gowans v. Christie,68 where he argued that: ‘such representations are, it is thought, a mere matter of opinion, which even if erroneous, could not form a good ground for reducing the lease’. In the case of Flynn v. Scott,69 a statement that a vehicle was in good running order was held to be an expression of opinion which could not be relied upon.
The statement can be treated as a fraudulent misrepresentation of fact if it can be established that the opinion that the car was as good as new was not honestly held by the proprietor, or that no reasonable person in the defender’s position could have held such a view. Further support for Bruno’s case can be found in the case of Smith v. Land and House Property Corpn,70 where Bowen LJ stated that ‘if the facts are not equally known to both sides, then a statement of opinion by the one who knows the facts best involves very often a statement of a material fact, for he impliedly states facts which justify his opinion’.
In the present case, the garage is likely to have had more chance to assess the condition of the vehicle than Bruno and is also likely to have more expertise in the relevant field. It therefore may well be that their statement that the car was ‘as good as new’ will be treated as a statement of a material fact, and therefore Bruno will be able to have the contract rescinded on the grounds of the misrepresentation.
Alternatively, since the statement was made in negotiations close to the time at which the contract was formed, by a party in a better position to know the accuracy of the facts, it could be regarded as a term of the contract, and an action would lie for breach of contract.
Spain
(i) In such circumstances, the Spanish Civil Code allows the buyer to seek annulment of the contract of sale on the basis of a fraud by the seller. Articles 1300 and 1301 thus provide that contracts can be annulled: there is a four-year time limit.
Our point of departure must be the presence of possible fraud in the seller’s conduct. In this case, clearly the buyer would not have acquired the car but for the seller’s declaration that it was in perfect condition, as if it were new. There is clear precedent on this matter (the Supreme Court Ruling of 4/12/56), where an automobile was sold as if it were in good condition when that was not the case, the court concluded that this was a fraud.
For this reason, we consider that a claim to annul the sale contract pursuant to art. 1301 of the Civil Code before the Courts of first instance
68 (1871) 9 M 485 at p. 487. 69 (1949) SC 442. 70 (1885) 28 Ch D 7 at p. 15.
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would be quite likely to succeed so that the seller would have to return the money received for the car and the buyer would have to return the car.
(ii) Legal theory and case law also admit another approach for the buyer in the form of the redhibitory action under art. 1486 of the Civil Code in the case of hidden defects in the item sold which render it unsuitable for its use. It could also be considered here that there are hidden defects since the buyer and perhaps the seller are unaware of the true state of the automobile, which stopped running shortly after it was bought. Bruno could also bring an action under this head within six months following the sale, pursuant to art. 1490 of the Civil Code, in order to return the car and recover the price paid.
Comparative observations
The panoply of available remedies under a contract of sale is highlighted here; the case is simpler than the hypotheses under Case 1 since doubts as to the quality, value or authorship of the subject matter of the contract are not an issue. The significant characteristics of this case are: the consumer/professional inequality of information; the fact that a false representation was made orally prior to making the contract; the fact that the subject matter is second-hand and the fact that the altered quality of the goods seriously affects their usage.
Once again, all legal systems offer a variety of remedies, both for defective consent as well as for breach of contract. These options will be summarised briefly.
(i)Under Austrian, Dutch, French and Greek law there will be a remedy for mistake which entitles the buyer to annul the contract and claim restitution of the purchase price. For the most part, no bars or conditions operate to restrict the claim, save under Belgian law where it is suggested that the mistake may be inoperative since a purchaser of a second-hand car has to comply with a more onerous duty to inform himself about its condition; failure to do so renders his mistake inexcusable.
(ii)Subject to the proviso that a representation must be a statement of fact (made by one party to the other prior to the contract), an action could lie for fraudulent or innocent misrepresentation, under English, Irish and Scottish law. However, only damages will be available, since the lapse of time will bar a claim in rescission, except if fraudulent misrepresentation is proven, in which case time only starts running
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from the discovery of the fraud. Likewise, under Belgian, Dutch, French, German, Greek, Italian and Spanish law an action will lie for fraud, giving rise to annulment and/or tortious damages.
(iii) Again, several types of breach of contract are identifiable: breach of a contractual duty to inform the other contracting party, breach of a guarantee against hidden defects, breach which may be described as non-conformity in contracts of sale (relating to the quality and fitness for purpose of the goods) and breach of description.
(a)The contractual duty to inform. Once again under Norwegian law, the breach of contract is qualified as a contractual failure to disclose since the breach is based on the falseness of the seller’s statement (the seriousness of the defect renders the statement untrue). This kind of breach of contract can be assimilated to a precontractual obligation to inform (or a fraudulent concealment) and gives rise to termination and damages. The similarity of the solution as under (ii) is striking except that the remedy is qualified as contractual. The practical difference lies in the assessment of damages: contractual damages (combined with termination and restitution in kind) enable the aggrieved party to claim expectation damages (putting him in the situation he would have been had the contract been performed) whereas tortious damages have a different end-purpose.
(b)Guarantee against hidden defects and non-conformity. Under Austrian, Belgian, Dutch, French, Italian, Portuguese, and Spanish law a claim can be made for breach of a guarantee against hidden defects within a short time limit. The remediable aspect of the defect affects the choice of remedy under Austrian law (retrospective termination or price reduction). The fact that the car is second-hand does not affect the existence of the remedy. Remedies consist in termination, price reduction or damages. This was the case in German law (up until 31 December 2001).71 Under the new law, the buyer’s remedies are strengthened, since he can now claim for the car’s repairs72 as well as damages.73 Under Greek law, the absence of the good condition of the car, a quality agreed by the
71Such damages were awarded either as the car lacked a guaranteed quality (former
§ 463, 1st sentence), which is not applicable here or whenever the seller had concealed a defect and deceived the buyer (former § 463, 2nd sentence); this being a question of evidence.
72If repairing the car is useless or impossible, the buyer can fall back on termination of the contract or reduction of the price because the car’s condition does not correspond to the contract (cf. §§ 434, 437 Ziff 1 for the provisions on repairs; §§ 434, 437 Ziff 2 for termination or reduction of price).
73Damages for breach of contract can be awarded because the seller knew or ought to have known that the car is defective (§§ 434, 437 Ziff 3, 440, 280) or if the seller made a guarantee as to the quality of the car but the quality is lacking (§§ 434, 437 Ziff 2, 280, 276 I, 311 a). The latter provision is not fulfilled on the facts.